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Debt, CFA, Portfolio Manager, preferred stocks
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Healthcare REIT (NYSE:HCN) raised $287MM in a preferred stock offering today. Details are:

  • Issuer: Health Care REIT (Ticker: "HCN")
  • Security: Series J Cumulative Redeemable Preferred Stock
  • Expected Rating: Baa3/BB/BB+ (Stable/Positive/Stable)
  • Size: $287mm (4mm $25 par shares)
  • Maturity: Perpetual
  • Optional Redemption: Callable at par March 2017

Use Of Proceeds: To redeem all or a portion of the company's Series D Preferred Stock and may use any remaining proceeds for general corporate purposes, including investing in health care and seniors housing properties or to redeem some of our other outstanding preferred stock.

Special Optional Redemption: Upon the occurrence of Change of Control (COC), the company may redeem the Series J Preferred Shares, in whole or in part and within 120 days after the first date on which the COC occurred, by paying $25 per share, plus any accrued and unpaid distributions.

The preferred also includes the newer "conversion feature" that we have seen on REIT preferreds.

Conversion Feature: Upon the occurrence of a Change of Control, each holder of Series J Preferred Stock will have the right to convert some or all of the Series J Preferred Stock into a number of shares of our common stock per share of Series J Preferred Stock to be converted equal to the lesser of:

  • the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series J Preferred Stock dividend payment and prior to the corresponding Series J Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price; and
  • (the "Share Cap"), subject to certain adjustments;
  • The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a dividend of our common stock), subdivisions or combinations (in each case, a "Share Split") with respect to our common stock as follows: the adjusted Share Cap as the result of a Share Split will be the number of shares of our common stock that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of shares of our common stock outstanding after giving effect to such Share Split and the denominator of which is the number of shares of our common stock outstanding immediately prior to such Share Split.

My conclusion:
As stated in the prospectus, the proceeds will be used to call the Series D preferred (7.875% coupon) or "to redeem some of our other outstanding preferred stock" The only other series of preferred stock is the series F preferred which has a 7.625% coupon. As the company has effectively raised enough money to call both series of preferreds, look for the announcement that the series F will be redeemed as the company can shave over 100bps on their preferred funding costs.

While I think there are better alternatives in the REIT space, within the healthcare sector this new issue has appeal given its call protection.

The company:
HCN is a real estate investment trust whose portfolio spans the full spectrum of seniors housing and health care real estate, including seniors housing communities, skilled nursing facilities, medical office buildings, inpatient and outpatient medical centers and life science facilities. As of December 31, 2011, their portfolio consisted of 937 properties in 46 states.

Source: Healthcare REIT Raises $287mm - Look For The Series F To Get Called